Investor’s Guide to Buying Commercial Property

Commercial property tops the wish list of many investors, and rightly so: it has proven to be a worthwhile endeavor over and over again. Nevertheless, with increased reward come significant challenges. Buying a commercial property can be a challenging task. This is why due diligence and adopting sound practices is important.

Commercial properties offer many benefits, such as steady income, massive capital gains, tax benefits, and portfolio diversification. Commercial properties are different from traditional single-family investments. That being said, with the right commitment, investors can quickly learn how to deal with and handle such investments.

Commercial properties refer to purchasing office buildings, hotels, malls, multifamily properties, and storage facilities, among other property types. The appeal of investing in these properties is tenfold more than residential properties. However, the property must align with the investor’s strategy.

This blog will serve as a walk through guide for investors who wish to purchase commercial property.

What is a Commercial Property?

In simple terms, commercial property is any property utilized for business purposes. Buildings where businesses operate, land used to generate profit, and residential rental properties all come under the umbrella of commercial properties. For example, malls, grocery shops, multifamily buildings, office buildings, etc.

However, if you’re interested in investing in this type of property, you need to be committed to holding the investment for the long run. As the commercial property is an illiquid asset, you should expect your money to be tied up for a significant time.

Although illiquid assets take a lot of time, they generate higher earnings over time and are not subjected to day-to-day price volatilities. Therefore, if you’re looking for more liquid and short-term investment, commercial properties are not the right investment option for you.

Real estate is a highly rewarding asset. But investors need to be aware of the risks that come with such investments.

Types of Commercial Properties

Commercial properties can be classified into five different types; office buildings, retail, hospitality, industrial, and multifamily properties. Each of these categories has different tax-saving benefits and returns.

When it comes to commercial office buildings, there are three types; the high-end recently upgraded properties, the moderately priced renovated properties, and the older buildings which have been around for more than twenty years.

Industrial properties comprise factories, plants, or warehouses used for manufacturing and distribution purposes. On the other hand, commercial retail properties are used for selling products and services.  

Hospitality spaces include hotels, hospitals, or rentals. Finally, multifamily properties are usually referred to as apartment buildings or complexes where more than five units inhabit.

Steps to Purchase Commercial Properties

Investing in commercial properties is quite similar to traditional properties, but the investment can be considered large-scale. The process before purchasing the property is quite lengthy and research-oriented, but there will be differences in the revenues.

Commercial properties mean higher investment, longer lease period, and higher rental income. And to prepare for this investment, investors need to perform due diligence and ensure they have the right systems in place. Eventually, as you gain more experience as a commercial investor, you’ll become more skilled at analyzing properties and securing deals.

To help you get a better idea of the entire process that goes behind investing in a commercial property, a few important steps have been explained below.

Be Clear on Your motivation Behind Investing in a Commercial Property

Why do you want to invest in a commercial property? This is a question all investors need to ask themselves before they move forward. There is no point in investing in commercial real estate property if you don’t know what you’re trying to accomplish. So, instead of investing first and figuring out the “why” later, try to do the opposite.

Determine your goals and then search for a commercial property to help you accomplish those goals.

Evaluate Your Investing options

As mentioned above, there are various commercial properties you can choose to invest in. Hence, you should figure out which property aligns with your investment strategy.

Secure Financing

Before you find a commercial property, you need to secure financing. With a budget in place, you’ll narrow down your search and close a deal faster.

Take Help from a Professional

It’s always a good idea to incorporate a professional opinion in your property dealings. The right partners are key to securing your dream commercial property.

Establish Criteria

Begin your search by looking for properties that meet your criteria. Always remember, there’s no point in investing in a commercial property that doesn’t help you accomplish your goals as an investor. It’s best to establish a criterion that aligns with your goals and stick to it.

Perform Due Diligence

As mentioned above, it’s clear that commercial properties are different from traditional family properties. So, before you close the deal, it’s crucial to mind due diligence. What are the risks? Are they worth the rewards? Is the property relevant to your goals and budget? Is there a better property? These are all questions you need to ask yourself as an investor.

Only proceed when you’re confident about the property as a whole.

Close the Deal

Finally, get ready to close the deal once you find the ideal property. However, don’t forget to keep minding due diligence through the negation and closing process. A lot goes into such a transaction, so make sure you’re prepared and well-informed.

Private financing in New York

Let Insula Capital Group help you accomplish your goals as a commercial real estate investor. They are a leading private lending and real estate investment company. They are well-versed in fix-and-flip, multifamily mixed-use, and rental properties.

Get in touch with them to explore more about their commercial financing options.

About the Author

The author of this post is a seasoned commercial investor with years of experience in the real estate market. They have been associated with Insula Capital Group for years and have helped various commercial investors devise investment strategies and accomplish goals.